Retirement: Lessons from the first year

(Fortune Magazine) -- Jim Down's 85-year old mother wasn't happy for him when he retired. In fact, she cried. The former vice chairman of Mercer Management Consulting was only 50 when he stepped down in 2002 far too young, as far as Mom was concerned, to cross the finish line.

Jim's father, a Travelers insurance manager, retired at age 70 and had never been happy with all the free time on his hands. "To her, retirement is the end of the road," says Down. "I had to convince her it was a new beginning."

Louise Levine in Whistler.

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First he had to convince himself. "It was scary," he says. "I thought, Will I feel productive?" Sure, he kicks back. Each summer he chooses a country and spends two weeks playing as much golf there as he can. Last fall he picked grapes in a Portuguese vineyard and stomped them with his feet.

But he also has a sense of purpose - such as bringing business know-how to nonprofits like Oxfam America. "Retirement is better than I thought it was going to be," he says. That is a big relief to his mother.

But not every retiree in Down's position is as lucky as he is. "I meet people who are struggling," he says. "I know people who made money at an early age who don't have much to do and don't seem very happy."

People with money who aren't happy in retirement? Nice problem if you can get it. We're not going to kid you: Money, and plenty of it, is still one of the backbones of a long and contented rest of your life.

But as much as you've dreamed of the moment when you can finally tell your boss to take this job and - how to put this? - allow somebody else the opportunity to bring a new vision and skill set to the position, retiring with a nice mound of money doesn't mean instant bliss.

"The first year after retirement is a quirky time," says retirement guru Ken Dychtwald. "It's a time of feeling enthusiastic and liberated. It's also a time of turmoil."

And it's gonna be great - once you get over the hump and start to create the life you've always wanted. To help you get there, we've put together some rules for making it through the first 12 months.

Remember, vegging has its benefits. Suddenly having a lot of free time can lead to regrettable choices - like starting ill-conceived businesses or making iffy stock investments just to fill the void.

"If you rush off immediately to a gated community in Florida, you could miss out on the next big part of your life," says Dave Corbett of New Directions, a firm that coaches senior execs through major life changes.

How much time should you take? As much as you need.

For Louise Levine, 62, a former medical advisor for Eli Lilly, a 10-day ski trip to Whistler, B.C., last January was enough before taking a gig at another pharmaceutical company. "I'm happy I didn't take more time off," she says. "My enjoyment in life is to work."

Gail MacDonald, a 50-year-old former section head of quality assurance for Procter & Gamble, took a year after she retired in 2004 to decompress. During that time she stayed in Cincinnati and took advantage of the attractions she had always been meaning to try. She golfed the local courses Majestic Springs and Legendary Run and dined at Boca and Pigall's. She planted flowers.

"I had all 24 hours in the day," she says. "I could go grocery shopping on a Tuesday afternoon instead of eight o'clock at night after work." Three years later she's now happily ensconced on North Carolina's Outer Banks. "In that first year, I didn't make any big changes," she says. "I allowed fate to take me, and it was delicious."

You know the rule of thumb - you'll need 70% to 80% of your preretirement income to maintain the standard of living you had when you were working. After all, you'll no longer be wasting money on professional-looking duds and carting yourself to and from the office.

Best of all, you won't be saving for retirement anymore. Even with increased health-care costs, who needs the extra money?

You might. That retirement calculation is not a magic number. According to the latest retirement study from McKinsey, well over half of retirees with more than $1 million in assets were spending 100% or more of what they spent while they were working.

"Free time is an expensive proposition, especially for the affluent," says Joanna Rotenberg, the consultant who headed up the study. Complicating the spending picture is the transition from traditional pensions, which acted as a de facto budget, to defined-contribution plans, which require the retiree to exercise spending discipline.

"With pensions, you didn't have a wad of cash to tap," says Alicia Munnell at Boston College's Center for Retirement Research. "With the 401(k), people have to face the challenge of how to use that money over the rest of their life."

Travel is usually high on the list. According to the study, 65% of affluent retirees are setting off to see the world. And when it comes to those leisure pursuits, 55% didn't expect them to cost as much as they did.

Even day-to-day expenses can take well-to-do retirees by surprise - half are paying more for things like utilities, property taxes, and groceries than they anticipated.

And children, no matter what age, can be costly - 10% of retirees have kids who are still living off Mom and Dad.

So the rule of thumb is not retirement gospel. "Think about the full cost of what you want to do, and build it into your financial plan," says Rotenberg.

That bottle of Krug you've always wanted to sip with your spouse on the French Riviera does not come cheap. Neither does helping your 30-year-old with a down payment on a house.

Of course, there is an antidote to increased spending: a job. "Unless you're really wealthy, consider working in retirement so that you don't have to start spending that nest egg right away," says Dychtwald.

You won't be alone. According to a Vanguard survey released this year, 61% of Americans between the ages of 40 and 69 indicated that retirement would include some form of labor.

Dennis Wyman, a former systems engineer and trade show manager for Intel, originally planned to retire at age 62. But last year, when the company laid off more than 10,000 employees, he had to retire three years early. Fortunately, his wife is working full-time. And he had managed to build up more than $400,000 in his 401(k) and another few hundred thousand in his IRA, so they weren't in financial straits. Still, he's just 60, too young to start drawing down the nest egg. "We need it to keep growing," he says.

He decided to work, under one condition: It had to have an element of play. An avid cyclist - he has twice completed the 450-mile Cycle Oregon - he has long enjoyed fixing bicycles.

His new career: mechanic at a local bike shop. "Learning something new is exciting," he says.

So is keeping your brain stimulated. "Retirees want to stay intellectually challenged," says Brad Lawson of YourEncore, an organization that connects highly skilled retirees with Fortune 500 companies who need help with short-term projects.

"They want to continue to leverage their expertise." Davey Scoon, 60, the former CFO of Tom's of Maine, teaches managerial accounting each fall at Tufts School of Medicine and chairs the audit committee of two publicly traded companies.

"If I didn't have a reason to stay up on financial accounting, I wouldn't be happy," he says. "Being with people who are working on exciting businesses makes life interesting."

A little work staves off money shortages and boredom; it can also prevent identity crises. "In this culture, you are what you do," says Jon Duncan, a Seattle-based financial and retirement planner.

"That paycheck is a weekly reminder of your value." Not surprisingly, the more all-consuming the career, the more difficult for the retiree to adjust. "They need that daily validation from the working world around them," says Lauren Mackler, a personal and professional coach.

Case in point: Ajit Kapoor, 63, of Orlando, who spent the past 30 years climbing his way up the corporate ladder at companies like Xerox, AlliedSignal, General Motors, and finally Lockheed Martin. His wife, Sarah, had long been telling him that he needed to find an identity outside work. He paid no heed - until the pool party at his neighbor's house last November, a month after he retired as chief technology architect. One of his friends introduced him to another guest as "a big shot at Lockheed."

"Actually I'm not," Kapoor replied. "I just retired."

The remark and his own response threw Kapoor for a loop. "My whole life I was Ajit Kapoor, VP of something," he says. "Suddenly people were like, 'Who are you?' And I had to think about it."

So he took up some hobbies, like golf and cooking. He visited his children in Boston and Phoenix. He read novels. Time helped heal the identity wound. "Gradually you find that you aren't suddenly nobody," he says. Still, he hasn't completely found a sense of self outside work. He recently started a business named (tellingly) Kapoor Group that consults with small companies in India.

Making new connections is also important in discovering your worth outside work. One of the great nonmonetary benefits of a full-time job is the wellspring of friendships you develop with people who have a pretty good understanding of what makes you tick. It's a benefit that most of us take for granted.

According to a 2006 study by Ameriprise Financial, Age Wave, and Harris Interactive, losing those social connections is the most unforeseen difficulty of retirement. Just 13% of preretirees say it will be the hardest aspect to deal with, but once out the door, 22% report this loss as the greatest adversity during the transition.

Laura Mendelsohn, 59, had been warned by friends to expect some tension with her husband after she retired in 2003 as a research scientist for Eli Lilly. Married 26 years to Alan, age 57, she thought they had worked out all the usual marital kinks along the way. "We got along so well," she says. "What could we possibly have conflict with?"

For starters, having less time and space to herself. If he is watching television, and she wants to practice her violin, she schleps her stuff upstairs so that she doesn't disturb him. When she needs to work on part-time medical writing assignments, he has a hard time with her shutting the door in order to concentrate.

"He's around more than I expected," she says. "If I want to read a book or work on learning Italian, I have to hide. It's great that he wants to be with me, but sometimes I'm busy conjugating verbs."

With all of that togetherness, which you may or may not have been longing for, unexpected issues can arise in even the best of partnerships. "People don't anticipate the problems around this transition," says Phyllis Moen, a sociology professor at the University of Minnesota who has studied the effects of retirement on marriage.

"Couples need to renegotiate their time together and their routines, just as they did early in their marriage." Her research finds that newly retired couples report the highest levels of marital conflict. The good news is that after two years that tension tends to diminish.

Developing common interests keeps relationships strong. Neither Laura nor Alan traveled much for work, so trotting the globe was a big priority. At least once or twice a year the Indianapolis couple takes some far-flung trip - a week in Provence, a drive along the Amalfi coast.

But just as important is having time apart. Alan wants to see more of the world than Laura does. So last year he toured Asia without her. Laura joined a book group and takes acrylic-painting classes.

"I'm more solitary, and he's very gregarious," she says. Which is fine, says Moen: "Marriages do better when spouses have time to do their own thing."

Recalibrating your marriage takes a little practice and a little getting used to, just like everything else about your post-corporate life. If bliss were a simple matter of golf, sailboats, and watching Law & Order marathons, this stuff would be easy. Alas, no. Retirement is a lot of work, so get cracking.

Research Associate: Susan M. Kaufman contributed to this article.